Swallows Holding v. Comm IRS

Opinions of the United

2008 Decisions States Court of Appeals

for the Third Circuit

2-15-2008

Swallows Holding v. Comm IRS

Precedential or Non-Precedential: Precedential

Docket No. 06-3388

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 06-3388

SWALLOWS HOLDING, LTD.

v.

COMMISSIONER OF INTERNAL REVENUE,

Appellant

On Appeal from the United States Tax Court

(No. 02-08045)

Argued on September 25, 2007

Before: AMBRO, JORDAN and ROTH, Circuit Judges

(Opinion filed February 15, 2008)

Gilbert S. Rothenberg, Esquire (ARGUED)

United States Department of Justice

Appellate Section

950 Pennsylvania Avenue, N. W.

Washington, D. C. 20530

Eileen J. O’Connor, Esquire

Assistant Attorney General

Richard T. Morrison, Esquire

Deputy Assistant Attorney General

Jonathan S. Cohen, Esquire

Steven W. Parks, Esquire

Attorneys, Tax Division

United States Department of Justice

P. O. Box 502

Washington, DC 20044

Counsel for Appellant

Phillip L. Jelsma, Esquire (ARGUED)

Luce, Forward, Hamilton & Scripps, LLP

11988 El Camino Real, Suite 200

San Diego, CA 92130

Counsel for Appellee

OPINION

2

ROTH, Circuit Judge:

This case, grounded in the principles of administrative

law, requires that we review the validity of an Internal Revenue

Service (IRS) regulation. The Tax Court, in considering this

regulation, analyzed it under the factors provided in National

Muffler Dealers Ass’n v. United States, 440 U.S. 472, 477

(1979), and concluded that the regulation was invalid. In

coming to this conclusion, the Tax Court explained that the

standard established in National Muffler had not been replaced

by Chevron U.S.A., Inc. v. Natural Resources Defense Counsel,

Inc., 467 U.S. 837 (1984), and that the result under either

standard would be the same. We do not agree with the outcome

reached by the Tax Court. We have determined that the result

would not be the same under Chevron analysis as it would be

under National Muffler and that the regulation here should be

given Chevron deference.

I. Factual and Procedural Background

The IRS has appealed a United States Tax Court decision

that held Treas. Reg. 1.882-4(a)(3)(i) to be invalid. Petitioner-

appellee Swallows Holdings, Ltd. (Taxpayer) is a Barbados

corporation with two principal shareholders, Raimundo Arnaiz-

Rosas and Aurora Elsa Arnaiz. On September 14, 1992,

Taxpayer filed its first federal income tax return. In its return,

Taxpayer reported that it held real property in San Diego,

California. Between 1993 and 1996, Taxpayer generated rental

3

income from the San Diego property.1 It was not until 1999,

however, that Taxpayer filed returns for tax years 1993, 1994,

1995 and 1996.

A foreign corporation, engaging in trade or business in

the United States, is taxed on its taxable income that is

connected with the conduct of that trade or business. 26 U.S.C.

§ 882(a). Deductions from income are allowed only if they are

connected with the “income which is effectively connected with

the conduct of a trade or business within the United States.”

Section 882(c)(1)(a). However, foreign corporations that do not

engage in a trade or business in the United States are taxed at a

flat rate of thirty percent of any amount received from sources

within the United States. Section 881(a). The Internal Revenue

Code, generally speaking, does not allow these foreign

corporations to claim deductions. Section 882(c)(2).

Nevertheless, if a foreign corporation conducts real property

activity in the United States, the foreign corporation can treat the

income derived from the real property activity as income from

a “trade or business,” thus qualifying the foreign corporation to

claim tax deductions (e.g., interest and taxes) that are otherwise

unavailable. Section 882(d)(1).

1

The real property located in San Diego remained vacant

during the period of time that is relevant to this appeal.

Taxpayer leased the property to an entity that used it as a landing

zone for sky-diving adventures. See Swallows Holdings, Ltd. v.

C.I.R., 126 T.C. 96, 101 (2006).

4

The dispute in this case arises from the filing deadlines

set forth in Treas. Reg. 1.882-4(a)(3)(i),2 which the Secretary of

the Treasury promulgated to supplement section 882(c)(2). The

regulation requires that a foreign corporation file a return within

eighteen months of the filing deadline set in section 6072 in

order to claim the real property activity tax deductions. Here,

Taxpayer filed the tax returns in question well after the

expiration of the eighteen-month filing period. The

3

Commissioner assessed tax deficiencies accordingly.

Taxpayer challenged the Commissioner’s findings in the

United States Tax Court, arguing that Treas. Reg. 1.882-

4(a)(3)(i) was an invalid exercise of the Secretary’s rule-making

authority. See Swallows Holdings, Ltd. v. C.I.R., 126 T.C. 96

(2006). The Tax Court granted judgment in favor of Taxpayer,

focusing its inquiry on the plain meaning of I.R.C. § 882(c)(2).

Specifically, the court held that section 882(c)(2) requires that

2

Treas. Reg. 1.882-4(a)(3)(i) provides:

If a return was filed for that immediately

preceding taxable year, or if the current taxable

year is the first taxable year of the foreign

corporation for which a return is required to be

filed, the required return for the current taxable

year must be filed within 18 months of the due

date as set forth in section 6072 and the

regulations under that section . . . .

3

The Secretary determined that Taxpayer owed deficiencies

for 1994, 1995, and 1996.

5

foreign corporations file “in the manner prescribed by subtitle

F . . ..” Id. at 107. The Tax Court’s interpretation of the statute

centered on the meaning of the word “manner” in the absence of

any explicit textual reference to “time.” The court found it

persuasive that Congress did not draft the statute with the

familiar phrase “time and manner.” The court noted that

Congress placed “time” and “manner” together in several Code

sections, indicating that when Congress intended a time limit to

apply, it did so with the phrase “time and manner.” Because the

court found that the plain meaning of “manner” did not

inherently include an element of time, the court concluded that

Congress did not intend section 882(c)(2) to embody a filing

deadline. Id. at 134-46. The court found that the meaning of the

statutory text was plain and unambiguous. Id. at 135. The court

nonetheless continued its analysis and held that the Secretary’s

interpretation of the statute to include a timely filing

requirement in the language of Treas. Reg. 1.882-4(a)(3)(i) was

unreasonable. 126 T.C. at 137.

Relying on its earlier opinion in Central Pa. Sav.

Association & Subs. v. Commissioner, 104 T.C. 384, 392 (1995),

the Tax Court determined that the standard established in

National Muffler had not been replaced by Chevron and that the

result under either standard would be the same. Id. at 131. The

court concluded that a consideration of the National Muffler

factors demonstrated the unreasonableness of the Secretary’s

interpretation of section 882(c)(2) to include the timely filing

requirement. Id. at 137. The Tax Court listed the six factors set

out in National Muffler to consider in assessing the

reasonableness of the agency action. The Tax Court described

these factors as follows:

6

(1) whether the regulation is a substantially

contemporaneous construction of the statute by

those presumed to have been aware of

congressional intent; (2) the manner in which a

regulation dating from a later period evolved; (3)

the length of time that the regulation has been in

effect; (4) the reliance placed upon the regulation;

(5) the consistency of the Secretary’s

interpretations; and (6) the degree of scrutiny

Congress has devoted to the regulation during

subsequent reenactments of this statute.

Id. at 137 (citing National Muffler, 440 U.S. at 477).

The Tax Court found that the Secretary’s action failed to

meet several of the National Muffler factors: the regulation was

not a substantially contemporaneous construction of the statute;

the regulation evolved after the Fourth Circuit Court of Appeals

and the Board of Tax Appeals had repeatedly and consistently

held that the statute did not include a timely filing requirement;4

the regulations were issued after multiple reenactments of the

statutory text; the Secretary’s statement accompanying the

issuance of the regulations flew in the face of the prior court

holdings and was a departure from the Secretary’s previous

4

See Georday Enter. v. Comm’r, 126 F.2d 384 (4 th Cir. 1942);

Blenheim Co. v. Comm’r, 125 F.2d 906 (4 th Cir. 1942); Ardbern

Co. v. Comm’r, 120 F.2d 424 (4 th Cir. 1941); Taylor Sec. Inc. v.

Comm’r, 40 B.T.A. 696 (1939); Anglo-American Direct Tea

Trading Co. v. Comm’r, 38 B.T.A. 711 (1938).

7

interpretation of the 1957 regulations; and the statute had been

reenacted several times without change to the governing

statutory language. Id. at 137-38. As a result, the court held

that the regulation was an unreasonable exercise of the

Secretary’s statutory power. Thus, the Tax Court ruled in favor

of Taxpayer, holding that I.R.C. § 882(c)(2) did not include a

filing deadline and that Taxpayer was entitled to the rental

activity deductions. The IRS appealed.

II. Discussion

A. Jurisdiction

We have jurisdiction to review the final judgment of the

Tax Court pursuant to I.R.C. § 7482(a)(1); see also New York

Football Giants, Inc. v. C.I.R., 349 F.3d 102, 105-06 (3d Cir.

2003). We exercise plenary review over the Tax Court’s legal

conclusions but will only set aside factual findings that are

clearly erroneous. Capital Blue Cross v. C.I.R., 431 F.3d 117,

123-24 (3d Cir. 2005).

B. Applicability of Chevron

The crucial issue before us is whether the Tax Court

erred in applying National Muffler rather than Chevron when

evaluating the validity of Treas. Reg. 1.882-4(a)(3)(i). We hold

that the Tax Court erred in applying National Muffler to the

extent that the National Muffler factors are inconsistent with

Chevron analysis.

8

In Chevron, the Supreme Court reasoned that the

judiciary was to afford an agency discretion to interpret

ambiguous provisions of the agency’s organic or enabling

statute. In what has become familiar administrative law

parlance, the Chevron Court set forth a two step analysis:

When a court reviews an agency’s

construction of the statute which it administers, it

is confronted with two questions. First, always, is

the question whether Congress has directly

spoken to the precise question at issue. If the

intent of Congress is clear, that is the end of the

matter; for the court, as well as the agency must

give effect to the unambiguously expressed intent

of Congress [Chevron Step one]. If, however, the

court determines Congress has not directly

addressed the precise question at issue, the court

does not simply impose its own construction of

the statute, as would be necessary in the absence

of an administrative interpretation. Rather, if the

statute is silent or ambiguous with respect to the

specific issue, the question for the court is

whether the agency’s answer is based on a

permissible construction of the statute [Chevron

Step two].

Chevron, 467 U.S. at 842-43. Courts, including the Supreme

Court, have operated under this general framework post-

Chevron. See, e.g., Nat’l Cable & Telecomm. Ass’n. v. Brand X

Internet Serv., 545 U.S. 967, 980-81 (2005); United States v.

9

Mead Corp., 533 U.S. 218, 226 (2001); Woodall v. Fed. Bureau

of Prisons, 432 F.3d 235, 248-49 (3d Cir. 2005); George Harms

Const. Co. v. Chao, 371 F.3d 156, 161 (3d Cir. 2004); Robert

Wood Johnson Univ. Hosp. v. Thompson, 297 F.3d 273, 281-82

(3d Cir. 2002). In accordance with this precedent, we will

proceed to determine if this case should be reviewed under

Chevron.

Our inquiry would be a simple one if, as the Tax Court

suggested, the result of this case would be the same regardless

of which standard we apply. This, however, is not the case. The

Tax Court relied heavily on factors that, although relevant to the

National Muffler standard, are not mandatory or dispositive

inquiries under Chevron. As we set out above, the Tax Court

reasoned that the challenged regulation was not a

contemporaneous construction of the statute; the Tax Court

found that the Fourth Circuit Court of Appeals and the Board of

Tax Appeals had interpreted the statute as not including a timing

element, and the Tax Court relied on the existence of several re-

enactments of the statute without any change to the governing

statutory language.5

5

We take time to note that the Tax Court and the Taxpayer

erroneously rely on the legislative re-enactment doctrine.

Legislative re-enactment is a doctrine under which “Congress is

presumed to be aware of an administrative or judicial

interpretation of a statute and to adopt that interpretation when

it re-enacts a statute without change.” Reese Bros., Inc. v.

United States, 447 F.3d 229, 238 (3d Cir 2006). Application of

this doctrine is appropriate only when “an agency’s statutory

10

Even if we were to assume that all of these observations

are true, conclusive reliance on them is misplaced. When

Chevron deference is owed, Chevron’s demands are clear. If the

statutory text is ambiguous, an agency is given the discretion to

promulgate rules that interpret the ambiguous provisions.

Judicial deference to an agency’s rule-making authority ends

only when the agency’s construction of its statute is

unreasonable. Accordingly, we now consider whether Chevron

deference is appropriate here.6

construction has been fully brought to the attention of the public

and the Congress, and the latter has not sought to alter that

interpretation although it has amended the statute in other

respects, then presumably the legislative intent has been

correctly discerned.” Id. (citations omitted). Taxpayer has not

met this burden. Accordingly, we find that legislative re-

enactment doctrine is inapplicable here.

6

In reaching this conclusion, we agree with a recent Second

Circuit opinion, which reviewed the validity of a Treasury

Regulation issued by the IRS. See McNamee v. I.R.S., 488 F.3d

100 (2d Cir. 2007). The regulation at issue in McNamee

dictated a limited liability company’s ability to elect certain tax

treatment. Rather than apply National Muffler, the Second

Circuit placed the inquiry within the purview of Chevron, Mead

and Brand X. Although the court cited to National Muffler, it

did not apply its six-factor balancing test, and it did not assert

that National Muffler was governing by itself. Instead, the court

simply used National Muffler to explain that an agency’s

interpretation of an ambiguous provision must be reasonable, a

11

C. Chevron Analysis

We note that Chevron deference will not be extended to

all agency action. Mead, 533 U.S. at 229-31. Mead teaches that

Chevron deference is appropriate only in situations where

“Congress would expect the agency to be able to speak with the

force of law . . ..” Id. at 229 (emphasis added). When Congress

does not intend a particular agency action to wield the force of

law, Skidmore deference may be appropriate.7 Thus, Mead

requires that we assess the legal effect of Treas. Reg. 1.882-

4(a)(3)(i), which was promulgated under I.R.C. § 7805. Section

7805, which is a general grant of power to the Secretary,

provides:

Except where such authority is given by this title

to any person other than an officer or employee of

the Treasury Department, the Secretary shall

prescribe all needful rules and regulations for the

proposition that is not at odds with Chevron’s core teachings.

7

Skidmore deference is derived from the Supreme Court’s

holding in Skidmore v. Swift & Co., 323 U.S. 134 (1944). Under

Skidmore, a court will determine the amount of deference to

afford agency action based on an evaluation of several factors.

The factors include “the thoroughness evident in [an agency’s]

consideration, the validity of [an agency’s] reasoning, [an

agency’s] consistency with earlier and later pronouncements,

and all those factors which give [an agency] power to persuade,

if lacking the power to control.” Id.

12

enforcement of this title, including all rules and

regulations as may be necessary by reason of

any alteration of law in relation to internal

revenue.

We note first that the deference owed to regulations

issued under I.R.C. § 7805(a) has been described over the years

in different ways. In National Muffler, of course, the Supreme

Court listed factors such as whether the regulation was

contemporaneous with the statute, the age of the regulation, and

the consistency of its interpretation. 440 U.S. at 477. More

recently, however, in United States v. Cleveland Indians

Baseball Co., 532 U.S. 200, 219 (2001), the Court remarked that

“we defer to the Commissioner’s regulations as long as they

‘implement the congressional mandate in some reasonable

manner.’” Id. at 219 (quoting United States v. Correll, 389 U.S.

299, 306-07 (1967).8

In Armstrong World Inds., Inc. v. Comm’r, 974 F.2d 422,

430 (3d Cir. 1992), this Court considered the validity of a

regulation issued under section 7805(a). We cited to Chevron,

8

The Court in Cleveland Indians, in fact, went on to quote

National Muffler, not for the factors listed by the Tax Court in

this case for determining deference, but for the overall concept

that “Congress has delegated to the [Commissioner], not to the

courts, the task of prescribing all needful rules and regulations

for the enforcement of the Internal Revenue Code.” 532 U.S. at

219 (quoting National Muffler, 440 U.S. at 477) (brackets in

original).

13

467 U.S. at 842-44, to support the need to determine if

“‘Congress has directly spoken to the precise question at issue,’

and if the intent of Congress is unambiguously expressed, we

must give that intent effect.” Id. at 430 (quoting Chevron, 467

U.S. at 843). Again quoting Chevron, we went on to state that

“[i]f the question has not been directly addressed, we then look

to whether ‘the agency’s answer is based on a permissible

construction of the statute.’” Under this standard, we concluded

that the regulation, promulgated under section 7805(a), was not

“unreasonable, arbitrary, capricious, or contrary to the plain

language of the Code,” id. at 442, and held the regulation to be

valid.

As we did in Armstrong World Industries, we will look

to Chevron here to determine the validity of Treas. Reg. 1.882-

4(a)(3)(i).

Taxpayer argues, however, that the Secretary

promulgated an interpretive regulation and that interpretive

regulations, as a class, do not merit Chevron deference. We

disagree. When determining whether Congress intends a

particular agency action to carry the force of law, our inquiry

does not hinge solely on the type of agency action involved.

Rather, “[d]elegation of such authority may be shown in a

variety of ways, as by an agency’s power to engage in

adjudication or notice-and-comment rule-making, or by some

other indication of a comparable congressional intent.” Mead,

533 U.S. at 227. There is no per se rule that relegates

interpretive rules to the realm of Skidmore. Here, the Secretary

opened the rule to public comment, a move that is indicative of

agency action that carries the force of law. Id. at 229-30; Cleary

v. Waldman, 167 F.3d 801, 808 (3d Cir.1999).9 Accordingly,

9

This Court has extended Chevron deference to interpretive

rules in the past. See, e.g., Mercy Catholic Med. Ctr. v.

14

the resulting regulation is entitled to Chevron deference if it

survives Chevron’s two prong inquiry.10

Thompson, 380 F.3d 142, 154-55 (3d Cir. 2004) (noting that

although informal interpretations are not entitled to Chevron

deference, formal interpretations, authorized to carry the “force

of law,” are properly placed within Chevron’s purview); George

Harms Const. Co. v. Chao, 371 F.3d 156, 161 (3d Cir. 2004)

(determining that after Mead, agency interpretations are entitled

to Chevron deference if the Mead “force of law” test is met);

Elizabeth Blackwell Health Ctr. for Women v. Knoll, 61 F.3d

170, 182 (1995) (reasoning, pre-Mead, that Chevron “deference

is appropriate here even though the Secretary’s interpretation is

not contained in a ‘legislative rule’”).

10

This conclusion is in accord with the treatment our sister

circuits have given to rules promulgated under I.R.C. § 7805, or

its predecessor. See, e.g., McNamee v. Department of Treasury,

488 F.3d 100, 106 (2d Cir. 2007) (“Because Congress has

delegated to the Commissioner to promulgate ‘all needful rules

and regulations’ [in I.R.C. § 7805(a)] . . . we must defer to his

regulatory interpretations of the Code so long as they are

reasonable”); Hospital Corp. of America v. C.I.R., 348 F.3d 136,

140-41 (6th Cir. 2003) (reasoning that general grant of authority

under I.R.C. §7805(a) still prompts judicial deference to rules

promulgated thereunder); Bankers Life & Cas. Co. v. United

States, 142 F.3d 973, 982-83 (7th Cir. 1998) (reasoning that

Chevron is appropriate analysis for interpretive IRS

regulations); United States v. Cook, 494 F.2d 573, 574 (5th Cir.

1974) (“A Treasury Regulation which is a reasonable

interpretation of a section of the Internal Revenue Code has the

effect of law.”).

15

1. Chevron Step One: Ambiguity of the

Statutory Text

First, previous judicial interpretations of I.R.C.

§882(c)(2) do not preempt our analysis in determining if the

statute is ambiguous. Taxpayer argues that our analysis is

unnecessary pursuant to the Supreme Court’s holding in

National Cable & Telecommunications Ass. v. Brand X Internet

Services, Inc., 545 U.S. 967 (2005). Brand X, however, held

that “[o]nly a judicial precedent holding that the statute

unambiguously forecloses the agency’s interpretation, and

therefore contains no gap for the agency to fill, displaces a

conflicting agency construction.” Id. at 982-83. No such

opinion exists in this case.11 Accordingly, we are not bound by

previous judicial interpretations of I.R.C. § 882(c)(2).

Under Chevron, if the statutory language is clear and

unambiguous, our inquiry ends and the plain meaning of the

statute governs the action. 467 U.S. at 842-43. If, however, the

statutory provision is ambiguous, such ambiguity is viewed as

an implicit congressional delegation of authority to an agency,

11

Taxpayer heavily relies on Anglo-American Tea Trading

Co. v. C.I.R., 38 B.T.A. 711 (1938). The court in Anglo-

American did not purport to adopt or apply the unambiguous

meaning of the word “manner.” Rather, the court detailed the

interpretive confusion that courts confronted. Only after

detailing this confusion did the court decide that no timing

element was applicable. Id. at 714; see also Ardbern Co. v.

C.I.R., 120 F.2d 424, 426-27 (relying on Ango-American

without applying “unambiguous meaning”). The Tax Court

acknowledged this fact, noting that previous judicial

constructions “did not state explicitly that they were applying

the unambiguous meaning of the word ‘manner’ . . ..” Swallows

Holding, 126 T.C. at 145.

16

allowing the agency to fill the gap with a reasonable regulation.

MCI Telecomm. Corp. v. Bell Atlantic-Pa., 271 F.3d 491, 515-

16 (3d Cir. 2001). The inquiry into the ambiguity of a statutory

provision must begin with the text of the statute. The text of

I.R.C. § 882(c)(2) reads in pertinent part:

A foreign corporation shall receive the benefit of

the deductions and credits allowed to it in this

subtitle only by filing or causing to be filed with

the Secretary a true and accurate return, in the

manner prescribed in subtitle F, including therein

all information which the Secretary may deem

necessary for the calculation of such deductions

and credits.

Our inquiry focuses on the requirement that foreign

companies file “with the Secretary a true and accurate return, in

the manner prescribed in subtitle F.” Taxpayer argues that the

word “manner” does not by its nature include a timing element,

thus indicating that Congress did not intend for a filing deadline

to exist. This is an overly narrow interpretation of “manner.”

Courts that have interpreted “manner” as used in I.R.C. §

882(c)(2) and its predecessors have struggled over whether

“manner” includes a timing element, which indicates that the

language is not clear and unambiguous. Compare Anglo-

American Tea Trading Co. v. C.I.R., 38 B.T.A. 711, 714 (1938)

(discussing divergent conclusions and adopting interpretation

that excludes a “timing” element), with Espinosa v. Comm’r,

107 T.C. 146, 156 (1996) (reasoning that provision embodied

some “cut-off” period, even if not expressly stated).

Moreover, Congress uses “manner” without “time” in

other sections of the Code, and, in some of these situations,

“manner” has been interpreted to implicitly include a timing

element. See I.R.C. §§ 179(c), 835(c)(2). In these provisions,

17

Congress did not use the phrase “time and manner,” yet the

Secretary promulgated valid regulations that include temporal

components. See Treas. Reg. §§ 1.179-5(a(, 1.826-1(a)(3)(i).

Thus, Congress does not uniformly use the phrase “time and

manner” when it desires a particular Code provision to embody

a timing element. Rather, we find “manner,” depending on the

context, may be a comprehensive term.

As used in this instance, the word “manner” may be

defined as “a characteristic or customary way of acting.”

W EBSTER’S D ICTIONARY 724 (9th Ed. 1986). Under this

definition, the provision is not a clear and unambiguous

expression of congressional intent, as one’s “customary way of

acting” may include an element of timeliness. Further,

Congress’s use of “manner” in I.R.C. § 882(c)(2) prompts

contextual ambiguity. We could read “manner” to refer to

subtitle F, which itself includes timing elements. Alternatively,

we could read this provision as indicating that Congress did not

wish the timing requirements of subtitle F to apply. Reading the

statute this way would not foreclose the Secretary from

promulgating a regulation that sets a filing deadline. Instead, it

would only restrict the Secretary from promulgating a regulation

that would embody the timing elements of subtitle F.

As a result, we hold that Congress’s use of the word

“manner” creates ambiguity. Therefore, Congress has not

“spoken to the precise question at issue.” Chevron, 467 U.S. at

843. Rather, because we find I.R.C. § 882(c)(2) to be

ambiguous, the Secretary was justified in promulgating a rule

that prescribed a filing deadline.

2. Chevron Step 2 - Reasonableness of the

Secretary’s Action

Our inquiry is not yet at its end, as we will only defer to

18

the Secretary’s action if it is a permissible construction of I.R.C.

§ 882(c)(2). See Woodall, 432 F.3d at 248 (citing Chevron, 467

U.S. at 842-43). We “need not conclude that the agency

construction was the only one it permissibly could have adopted

to uphold the construction, or even the reading the court would

have reached if the question had arisen in a judicial proceeding.”

Chevron, 467 U.S. at 843 n.11. Often, a promulgated rule is the

culmination of intense debate between the agency, Congress,

other members of the Executive Branch and the public. Rules

represent important policy decisions, and should not be

disturbed if “‘this choice represents a reasonable

accommodation of conflicting policies that were committed to

the agency’s care by the statute . . ..’” Id. at 845 (quoting United

States v. Shimer, 367 U.S. 374, 382-83 (1961)). Further,

Chevron deference is “even more appropriate in cases” that

involve a “‘complex and highly technical regulatory program .

. ..’” Robert Wood, 297 F.3d at 282 (quoting Thomas Jefferson

Univ. v. Shalala, 512 U.S. 504, 512 (1994)). The Code is

indisputably complex and technical, and we will adjust our

inquiry accordingly.

In this case, the Secretary has promulgated a rule that

creates an eighteen-month window within which foreign

companies must file a federal tax return in order to claim rental

activity tax deductions. Taxpayer argues that previous cases

upholding the disallowance of deductions under I.R.C. §

882(c)(2) involved filing deadlines that permitted at least a two

year window within which foreign corporations could have filed

timely tax returns. From this, Taxpayer draws the conclusion

that it is unreasonable for the Secretary to promulgate a rule

with a filing period of less than two years. We find Taxpayer’s

argument to be unpersuasive. The Secretary will, under the

current regulation, allow a foreign company to file eighteen

months after the filing was originally due. Moreover, because

I.R.C. § 6072(c) already provides for a five and one-half month

19

filing period, foreign companies have, in practice, twenty-three

and one-half months to submit a “timely” return. It is not

unreasonable for the Secretary to impose such a deadline.

Additionally, we believe that drawing this temporal line

is a task properly within the powers and expertise of the IRS.

Chevron recognizes the notion that the IRS is in a superior

position to make judgments concerning the administration of the

ambiguities in its enabling statute. In this case, the IRS found

that eighteen months served as a balance between its desire for

compliance with the federal tax laws and a foreign corporation’s

desire to obtain valuable tax deductions. Therefore, we hold

that the eighteen-month filing window created by Treas. Reg.

1.882-4(a)(3)(i) is a reasonable exercise of the Secretary’s

authority.

III. Conclusion

For the forgoing reasons, we will vacate the judgment of

the Tax Court and remand this case for further proceedings in

accordance with this opinion.

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